Question
12. Assume you are trying to compare Project Alpha to Project Beta. Both projects have the same appropriate discount rate. Project Alpha generates infinite after
12. Assume you are trying to compare Project Alpha to Project Beta. Both projects have the same appropriate discount rate. Project Alpha generates infinite after tax cash flows which do not grow; the first cash flow is $80M one year from now (T=1) and will cost $600M today (T=0). Project Beta generates infinite after tax cash flows which do not grow; the first cash flow is $40M one year from now (T=1) and will cost $300M today (T=0). Which statement about the crossover rate for Project Alpha and Project Beta is most accurate?
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If the appropriate discount rate for both projects was below the crossover rate of 13.3%, Project Alpha would have a better NPV than Project Beta
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If the appropriate discount rate for both projects was below the crossover rate of 4.4%, Project Alpha would have a better NPV than Project Beta
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If the appropriate discount rate for both projects was above the crossover rate of 4.4%, Project Alpha would have a better NPV than Project Beta
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If the appropriate discount rate for both projects was above the crossover rate of 13.3%, Project Alpha would have a better NPV than Project Beta
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If the appropriate discount rate for both projects was below the crossover rate of 20.0%, Project Alpha would have a better NPV than Project Beta
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